Yesterday, in an open meeting, the Securities and Exchange Commission voted unanimously to propose rules and forms to implement the crowdfunding exemptions established by Title III of the JOBS Act.

The proposing release is long, 585 pages long to be exact, with the text of the rules and forms taking up nearly 100 pages themselves, and, as per usual, comments are due 90 days after the release is published in the Federal Register.

In its press release announcing the proposed rules and forms, the Commission does offer some highlights of the major provisions, including those addressing:

Issuers

An issuer that uses the crowdfunding exemption will be able to raise a maximum aggregate amount of $1 million dollars in a 12-month period. The proposing release itself further notes that capital raised through other means will not count towards the maximum aggregate amount sold in a crowdfunding offering, so an issuer that relies on the crowdfunding exemption may go on to raise additional capital in the same 12-month period using another exemption (assuming another exemption is available) and vice versa.

An issuer that uses the crowdfunding exemption will have to file certain offering information with the Commission and provide that information to its investors, potential investors and any crowdfunding intermediaries facilitating its offering. An issuer will also have to amend its offering information to reflect material changes and to provide updates about the offering’s progress. Among other things, offering documents will have to disclose:

officers, directors and owners of 20% or more of an issuer;

a description of the issuer’s business and the use of proceeds;

the price of the securities being offered;

the target offering amount and whether the issuer will accept investments in excess of the target offering amount;

certain related-party transactions;

a description of the financial condition of the issuer; and

financial statements of the issuer that, depending on the amount offered and sold during a 12-month period, will have to be accompanied by a copy of the issuer’s tax returns or reviewed by an independent public accountant or auditor.

An issuer that uses the crowdfunding exemption will also be required to file an annual report with the Commission and to provide copies to its investors.

The crowdfunding exemptions will not be available to:

foreign issuers;

Exchange Act reporting issuers;

certain investment companies, including private funds;

shell companies;

issuers that fail to comply with the proposed rules’ annual reporting requirements; and

issuers that are disqualified under the proposed rules’ disqualification provisions.

Securities

Securities purchased in a crowdfunding offering may not be transferred for a period of one year, unless they are transferred:

to the issuer;

to an accredited investor;

in a registered offering; or

to a family member in connection with certain events (such as in the case of death or a divorce).

Holders of securities issued in a crowdfunding offering will not count toward the threshold for Exchange Act registration under Section 12(g). The proposing release further notes that securities issued in a crowdfunding offering will be permanently exempt from Section 12(g) (even after being sold or otherwise transferred to a subsequent holder), however, the burden will be on the issuer to demonstrate that the securities were initially issued in a crowdfunding offering.

Investors

Over a 12-month period investors will be able to invest up to:

$2,000 or 5% of their annual income or net worth, whichever is greater, if both their annual income and net worth are less than $100,000; or

10% of their annual income or net worth, whichever is greater, if either their annual income or net worth is equal to or greater than $100,000 (but only up to $100,000).

Platforms

Crowdfunding offerings will be conducted exclusively online through a platform operated by a registered broker-dealer or funding portal.

Crowdfunding intermediaries will be required to:

provide investors with educational materials;

take measures to reduce the risk of fraud;

make information about the issuer and the offering available;

provide communication channels to permit discussions about offerings on the platform; and